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  • Stock recommendation: Shankara Building Products Ltd – BUY – TP Rs.2017

    Publish date: August 17, 2018


    Result Update

    Shankara Building Products Ltd revenues were much ahead of our estimates but margins came lower than expectations due to sharp decline in enterprise and channel segment margins. Company is looking at higher revenue trajectory and in this process, margins may get impacted to some extent in the interim. However, more clarity would emerge in coming 1-2 quarters on the trade-off between higher revenues and slightly lower than expected margins. Though Q1FY19 was a strong quarter, company has mentioned that growth in Q2FY19 may get impacted by seasonal slowdown.


    Key Highlights

    • Revenue growth of 32.7% YoY is led by incremental stores, increase in average ticket size as well as addition of new products. Net profits growth of 12.7% YoY for Q1FY19 is slightly lower than our estimates and was impacted by fall in margins.
    • Company added 3 stores in Q1FY19 and upgrading 5 more stores and increased the proportion of retail segment sales to 51% from 48% in Q4FY18 with new store addition and store upgradation.

    Valuation & Outlook

    • At current price of Rs 1653, stock is trading at 31.1x P/E and 16.7x EV/EBITDA on FY20 estimates. We continue to remain positive on the company as it is likely to benefit from increasing shift towards organized retail in home building segment. Company is witnessing improved traction in the retail segment, addition of more brands and addition of large format stores at low rentals.
    • We maintain our estimates and price target of Rs 2017 based on 23x EV/EBITDA for retail business and 8x EV/EBITDA for channel and enterprise business. Maintain BUY.

          

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